Competitor Analysis: A Practitioner's Method for Predicting Moves

When YouTube went down, Netflix signups went up

In January 2019, Netflix's letter to shareholders included a short section on competition. It did not list streaming services and compare their catalogs. It said: “We compete with (and lose to) Fortnite more than HBO.” Then it offered a piece of evidence most strategy teams never think to look for: “When YouTube went down globally for a few minutes in October, our viewing and signups spiked for that time” ¹.

A few minutes of someone else's outage told Netflix more about its competitors than a feature comparison could. The spike suggests that when people could not watch YouTube, some of them turned to Netflix. That is the definition of a competitor that matters: the thing your customer does instead of buying from you.

Competitor analysis is the work of identifying the rivals that matter to a decision, understanding what drives each one, and predicting their next moves well enough to plan your own. The direct answer to “how do I do one?” is four steps: draw the field from the customer's side, profile what drives each serious rival, gather evidence from legal sources, and write down predicted moves with the signals that would confirm them.

The thesis of this page: a competitor analysis is finished when it predicts what a specific rival will do next and what you will do then. A feature grid of the companies in your industry answers neither question.

Your real competitor is whatever your customer does when you are not there.

Why the feature grid feels like analysis

The default deliverable is familiar: five competitors across the top, twenty features down the side, check marks, a price row, perhaps a market-share pie. It is easy to build, easy to update and impossible to argue with. That is the problem. It describes the past, it flatters whoever built it (the rows are usually chosen from your own feature list), and it predicts nothing.

A decision needs something different. If you are about to raise prices, enter a segment or launch a product, the question is not “who has which feature?” It is “who will respond, how, and how fast?” Michael Porter's Competitive Strategy devoted separate chapters to a framework for competitor analysis, to market signals and to competitive moves ⁴: from the start, the subject covered how rivals behave, not only what they sell. For the concepts, see competitive intelligence; this page is about the method.

Step one: draw the field from the customer's side

Start with the customer's choice, not the industry code. Netflix measured its position as a share of screen time: around 10% of US television screen time, it estimated, earned “away from a very broad set of competitors” ¹. Defined that way, a video game is a competitor and a rival streaming service is only one of many.

• Direct rivals: companies selling the same kind of product to the same customers. The obvious list, and usually the one already on the slide.
• Substitutes: other ways the customer gets the same job done, including doing nothing. See substitute products and jobs to be done.
• Potential entrants: companies with the assets to enter quickly: adjacent suppliers, large customers who could build it themselves, platforms that already own the customer relationship.
• The customer's own budget: for many business purchases, the real alternative is the money staying in another line of the customer's budget.

To find them, ask customers what they did before they bought, what they considered, and what they would do if you disappeared. Watch for natural experiments like the YouTube outage: a rival's price increase, a stock-out, a service failure. Whoever gains when you or a rival stumbles is in your field. Porter's five forces is the wider frame; this step only needs the rivals relevant to the decision on the table. Three to five serious ones is typical.

Step two: profile what drives each rival

A rival is not a row in a spreadsheet. It is a management team with targets, a board, a story it tells investors and assets it has already paid for. Its next move follows from those. The profile below asks five questions, each aimed at prediction.

The first two questions are where the insight usually is, and where most profiles are thinnest. A rival that has promised investors margin expansion is unlikely to start a price war. A rival whose leaders believe the market is shifting to subscriptions will defend subscription share at almost any cost. Netflix's 2019 letter, for instance, told any rival what Netflix believed: “Our growth is based on how good our experience is, compared to all the other screen time experiences from which consumers choose” ¹. A rival reading that would reasonably predict that Netflix answers a competitor's launch by improving its own service, not by matching the competitor move for move.

Where the evidence is, and where the legal line runs

For public companies, start with the filings. The SEC's guide to the annual 10-K report notes that Item 1, the business description, may include information about the competition the company faces; Item 1A lists the most significant risks; and Item 7, management's discussion and analysis, “allows company management to tell its story in its own words” ². That last section is where you find what a rival believes and what it is measured on.

• Their words: annual and quarterly reports, letters to shareholders, earnings call transcripts, investor-day presentations, conference talks.
• Their actions: pricing pages over time, product release notes, store or branch openings and closings, capital spending, patent filings.
• Their hiring: job postings show where a rival is building before any announcement does.
• Their customers and partners: your sales team's loss reviews, distributors, industry analysts, former customers of theirs who now buy from you.

The legal line is clear enough to state. US federal trade-secret law defines “improper means” as including “theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means,” and says it does not include “reverse engineering, independent derivation, or any other lawful means of acquisition” ³. Buying a rival's product and taking it apart is reverse engineering, which the definition excludes. Posing as a customer to get a confidential price list is misrepresentation. Asking a new hire to bring a former employer's files is inducing a breach.

Step three: predict the move, then plan yours

Most analyses stop at the profile. The useful ones write predictions down, in a form that can be wrong.

1. Name the decisionState the move you are considering (a price increase, a launch, an entry) and the date it would become visible to rivals.
2. Predict each rival's most likely responseFor each serious rival, write the response you expect, how soon, and why, citing the profile: what they are measured on, what they believe, where they are committed.
3. Add the response that would hurt mostWrite the rival move that would do you the most damage, even if unlikely, and what would have to be true for them to make it.
4. List the early signalsFor each predicted response, name what you would see first: a job posting, a price test, a statement on an earnings call. Assign someone to watch for each.
5. Decide your counter-moves nowFor the likely and the damaging response, decide in advance what you will do, so the meeting after the signal is about execution, not debate.
6. Score the predictions laterAfter six months, compare what rivals did with what you predicted. Wrong predictions tell you which belief about a rival to update.

For the deeper logic of responses, see game theory and signaling theory; for one common case, how to respond to a new competitor. When the uncertainty is about the market rather than one rival, scenario planning is the better tool.

A worked example

The companies below are invented. The arithmetic and the logic are the point.

Notice that the feature grid would have shown the marketplace with more SKUs and lower prices, and suggested no action except worry. The profile turned it into a prediction with a date, a signal and a planned response. Exempting 400 of the 3,000 SKUs gives up the increase on about 13% of the line items, and buys protection exactly where the predicted attack lands.

The case against watching competitors at all

The strongest objection comes from successful companies themselves: watch customers, not competitors. Netflix's own letter ends its competition section that way: “Our focus is not on Disney+, Amazon or others, but on how we can improve our experience for our members” ¹. Companies that obsess over rivals copy them, and copying is a race to the middle.

Read the paragraph again, though. Netflix reached that conclusion through a competitor analysis: it defined its field by customer time, estimated its share of it, and used a rival's outage as evidence ¹. Customer focus and competitor analysis are the same act done properly: understanding what the customer chooses instead of you. What the objection rightly rejects is the feature grid and the habit of matching every rival move.

Three second-order problems show up when a strategy team runs this at scale. Mirror imaging: analysts predict that rivals will do what their own company would do, so profiles quietly assume your targets and your beliefs. The fix is to write each rival's beliefs in that rival's own words, quoted from its filings. Myopia: the field stays fixed on the rivals of five years ago while the threat comes from a substitute; see competitor myopia. Redraw the field from the customer's side every year. Politics: the unit that owns the market often owns the competitor analysis, and has a stake in calling the threat small or large depending on its budget request. A central team, or a rotating red team, that writes the predictions and scores them later is the cheapest defense.

What to do Monday

Take the next decision on your calendar that a rival will see. Write one sentence per serious rival: what they will do, by when, and why. Then find one quote from each rival's latest annual report or earnings call that supports your “why.” If you cannot find it, your prediction is a guess about a company you have not yet read. Start there.

A competitor analysis that cannot be wrong cannot be useful. The grid will always be accurate. The prediction will sometimes miss. Only one of them will tell you what to do in September.

Questions

How do you do a competitor analysis?

Start from a decision. Define the field from the customer's side, including substitutes and potential entrants. Profile each serious rival: what it is measured on, what it believes, where it is committed, what it can do and what it has signaled. Then write down each rival's likely response to your move, the early signals to watch, and your planned counter-moves.

What should a competitor profile include?

Five things that predict behavior: the targets the rival's leaders are measured on, its management's beliefs about the market in its own words, the assets and commitments it must keep using, its demonstrated capabilities, and the signals it has sent. Feature and price comparisons belong in an appendix; they describe the past and rarely predict a move.

Where can I find information about competitors legally?

Public filings such as annual reports and the management discussion in them, earnings call transcripts, investor presentations, pricing pages, job postings, patents, product teardowns, and your own customers and sales loss reviews. US trade-secret law treats theft, bribery, misrepresentation and inducing a breach of confidentiality as improper means, and treats reverse engineering and independent derivation as lawful.

What is the difference between competitor analysis and competitive intelligence?

Competitive intelligence is the ongoing gathering and analysis of information about competitors and the market. Competitor analysis is a specific piece of work, usually tied to a decision, that uses that information to predict how particular rivals will act and to plan a response. A good intelligence function feeds many competitor analyses.

Where to go next

• Scenario Planning, as Practitioners Do It
• SWOT Analysis Template: From SWOT to a TOWS Matrix
• Competitive Threat Radar
• Competitor Myopia
• Competitive Analysis: The 6 Components